UK Chancellor George Osborne overruled UKFI in discussions over whether to allow Royal Bank of Scotland to pay its senior staff 200% bonuses, it has emerged.

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The news will again raise questions about the independence of UK Financial Investments, the body set up in 2008 to manage the UK's stakes in bailed-out banks but which is said to sit at arm's length from government.

RBS said today that it would not table plans at this year's AGM to pay its senior bankers and traders up to 200% of their fixed pay after the UK government - an 81% shareholder - said it would vote against the move.

In a statement this morning, an HM Treasury spokesperson said “an increase to the bonus cap cannot be justified and the government made clear it would not have supported such a proposal”.

However, this decision was at odds with UKFI, which told government in recent discussions that it thought RBS should have the option of paying its staff larger bonuses, according a person familiar with the talks.

The move from the UK Treasury puts the independence of UKFI in the spotlight. The body was created in 2008 as an autonomous organisation responsible for managing the government’s shareholdings in UK banks.

Back in 2009, the Treasury Select Committee recommended that UKFI move out of the Treasury's offices to ensure independence. UKFI moved to offices near Charing Cross Rd a year later.

But UKFI returned to Whitehall in 2012 and in November last year Robin Budenberg, then outgoing executive chairman of UKFI, told MPs that he had limited proposed cuts to banker pay put forward by Osborne. In late 2012, Budenberg assured MPs that UKFI could run at “arm’s length” from government interference.

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The stance from the UKFI allies it with the RBS management. A statement from the RBS board this morning said: “The board believes the best commercial solution for RBS is to have the flexibility on variable to fixed pay ratios that is now emerging as the sector norm.”

The chair of the Treasury Committee, Andrew Tyrie MP, said in a statement on Friday: "The Banking Commission concluded that UKFI would increasingly be perceived as a fig leaf to disguise direct Government control of RBS. Today's events appear to confirm this. It is difficult to argue that RBS is operating on an arms length, commercial basis, free from Government interference."